Autos

Selling Used Cars Sight Unseen, With Free Delivery

As of Tuesday morning, the good people of Charlotte can order a car the same way they order pizza. The only real difference is that delivery takes a day or two, and the vehicle, unlike the pie, can be financed.

Carvana, a startup offering point-and-click car buying with speedy delivery, is taking its unusual auto-sales approach across the Southeast. At this point, far more companies are trying to disrupt the car-shopping process than are making vehicles in the U.S. With no clear winner yet, and with remarkable fragmentation, Carvana’s approach might have promise.

The startup has proved to have a highly efficient sales engine in Atlanta, where it started selling cars early last year. Dealing exclusively in used cars, the general idea is straight out of the e-commerce playbook: Cut out the middleman. Without a showroom, bad coffee, or a squad of salesmen, Carvana claims to sell cars for a lot less than old-fashioned dealerships.

“The buyer saves about four hours of time and $1,500 in value,” Chief Executive Officer Ernie Garcia says. “I’m convinced dealerships aren’t purposefully creating bad experiences—they just have huge cost structures they have to support.”

Once shoppers find a ride they like, they can take a virtual tour online, where any dings, scuffs, or scratches are helpfully flagged. Clicking through, they can finance the car through Carvana, tack on a warranty, and schedule a delivery time.

The fastest purchase recorded by Carvana so far took just 11 minutes, start to finish. The startup’s legions of rivals, including Edmunds.com and TrueCar (TRUE), mostly seek to cut out the haggling, not necessarily the trip to the dealership.

Instead of test drives, Carvana offers a seven-day return window in which there is no penalty for sending back the car. About 2 percent of buyers back out during that time, Garcia says, but half of those customers simply buy a different vehicle from Carvana.

Getting inventory isn’t a problem. The company buys from individual owners, rental-car fleets, and auctions. Pricing isn’t an issue, either, given the highly fluid state of the used-car market.

The biggest challenge, according to Garcia, is convincing people it’s a good idea to order a car sight unseen. Carvana’s ability to court used-car buyers depends on just how effectively it can explain the advantages of its unusual sales model. “It takes some time for people to get comfortable with it,” Garcia admits. “But everyone who does it helps spread the word.”

In Charlotte this week, Carvana is making its case with a fairly amusing TV commercial. The launch marks Carvana’s third market, alongside sales in Atlanta and Nashville. The company supports all three cities from a single facility in Georgia, where it reconditions cars before shipping them to buyers.

Carvana has been financed by DriveTime, a Phoenix-based network of used-car dealerships, although Garcia says he’s been talking to venture capitalists these days.

And while Carvana has yet to turn a profit, Garcia expects to book $50 million in sales this year. With an average transaction price of $20,000 to $25,000, the startup will probably sell somewhere around 2,200 vehicles in the same period. That’s either pitifully small or a proof of concept—either way, it’s certainly enough to rattle the used-car dealers of Charlotte.